As noted by The New York Times, the quote represents Microsoft's most forthright comment regarding the fact that the media and public has largely perceived Microsoft's first-party Windows 8 tablet as superior to rival designs from OEM partners.

Microsoft CEO Steve Ballmer says that 10.6-inch Surface tablet is merely "priming the pump" for OEM partners' Windows 8 tablets. But his filing indicates clearly that he and his company are aware that OEMs may be damaged by their inability to compete with his slick tablet offering.

There's some risk to Microsoft from this approach. Competing with a customer ruined the relationship of Samsung Electronics Comp., Ltd. (KSC:005930) with Apple, Inc. (AAPL) and likewise Google, Inc. (GOOG) with Apple.

However, not competing is ultimately an even more risky choice. After all, it's hard to argue that Google is worst off for owning the world's most-used smartphone platform, despite the headaches that decision earned for it.

True, but as far as I know, Google's device is meant for developers, but lacks some features that many people deem necessary, such as capacity (limited to 16GB), or memory card slot, or a decent camera, etc.

So in my opinion, their devices are meant to encourage developers, but lack features intentionally to prevent true competition with the OEMs.

Google's device isn't meant for developers. It's meant to push content consumption through Google Play. They're playing a different game than Apple right now. Apple's making all their money on hardware with meager revenue from media. Google, like Amazon, are betting long term. They probably hope they can get people hooked into their universe of services for life, so they're not trying to make money off the hardware at the moment. Even though current spending on these devices is beans compared to the dough Apple's raking in through hardware sales, eventually the future will probably be much more device agnostic and accessing your "stuff" will be possible through any device you happen to be nearby -- a kiosk/atm, glasses, your car, your phone/tablet, your microwave, a window/billboard at a shopping mall, a mirror in the bathroom, your shopping cart, a neural link, etc, etc. At that point, hardware sales will cease to be important because people will be able to connect to their profile from anywhere. Whoever is providing the service that keeps track of your personal profile and lets you do what you want from all these portals will be the king. Google is probably betting on that future.

I neglected to make the point that the limited local storage is just a way to get you dependent on Google's cloud offerings. It's baby steps toward that future when everything around you is just a dumb terminal for your online profile.

It also serves to drive down one of apple's cash cows :) If you can make ipod/ipad/iphone commodity items, you're left competing with google on their own turf.

SEARCH. Nicely done google :)

At the same time of course, they end up with a ton of ways to get you to use that search. If you couple that with Gbit internet (up and down) I think they'll win hands down unless others get their own pipe. I agree, google/amazon are looking further out for success rather than today. As long as they lose nothing on the device, google can continue to marginalize apple sales into oblivion (much like MS IE vs. Netscape). Once google has serious gaming going (tegra3/4/5 etc) on a billion devices, devs will have to take notice also in a serious way. Consoles are already looking like their going to be on their way out with the next rev. Ouya is no doubt going to help tegra-nvidia/google in this area (and perhaps all android devices in the end). Many more are on the way as we see with Vizio Co-star doubling it's remote as a gamepad. It sold out in 12 hours and makes ANY HDMI TV google tv of sorts. A touch of gaming and chrome as a browser (with flash...like it or not) makes it a fairly attractive item. Any android phone with gamepad support and hdmi out (I'd say this will be norm shortly as all socs will be decent gamers next year compared to today's xbox360/ps3 etc) will continue to make handheld purchases questionable to parents.

The writing is on the wall...This is also the only way android (or any other) can hope to attack the stranglehold Microsoft has on gaming with DirectX. You have to get them written for your platform rather than DirectX to get anywhere.

Google are not quite there yet on making their device suitable for content creation though, due to a distinct lack apps. Apple very nearly is (with a bluetooth keyboard, alot of execs where I work are happy to use their iPad in place of their thin clients for the majority of purposes and it plays nicely with Exchange, SharePoint, Lync etc) hence the Nexus 7 is for Consumption only. MS look to be in a good position with their Surface, and assuming it sells ok and doesn't violate Apple's patents on powered, attached keyboards (and doesn't split the market with the two confusing and largely incompatible RT and regular types) then things will get interesting in the tablet space. Google strategy depends on volume of sales though. For this to happen, you need one model to be on the market for a while, and to be seen as the standard for COnsucmers to go to (Apple's strategy) which typically doesn't happen with Android devices, unless the other manufacturers of Android tablets just give up at this point. For the volume they sell, it hardly seems worth the investment.

That's utter crap. Google's device is lacking those features because they couldn't afford to put them in. Google don't make any money from the Nexus 7 directly, it just stops more people buying other tablets.

Microsoft is building a higher end tablet, because their OEMs refuse to do so.

Google built a cheap tablet that's not crap, because their OEMs refused to do so.